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Overview:
National and municipal authorities have tax levying powers in Italy, meaning property owners must deal with several different tax offices. Tax offices are listed in the telephone directory under Uffici Finanziari.
Two important concepts relating to tax residence in Italy are domicilio and residenza:
- Domicilio is the place where an individual mainly pursues his/her business; a domicilio is not normally a person's permanent address.
- Residenza is the place where an individual normally has his/her permanent residence.
It is possible for a person to have both domicilio and residenza at the same address.
The main issue is in relation to taxation of income. If you have your domicilio in Italy but your residenza in the UK, you will only be taxed in Italy on the income you earn in Italy. However, if you have your residenza in Italy, all your worldwide income will be taxed under Italian laws, (according to the applicable double taxation treaty with the UK). Residenza also grants you civic rights such as ability to vote in Italian elections and potential to apply for an Italian identity card. Most foreigners keep their residenza in their home country and establish a domicilio in Italy. Non-residents still have to pay local taxes (ranging between 1-2% of the property's taxable value), which are set by the commune and are paid bi-monthly.
The Inland Revenue defines you as non-resident in the UK if you live abroad for 183 days or more a year, not counting days of arrival and departure. Even if you are a non-resident in the UK, you must still submit a UK tax return in relation to your Italian property and you could be liable for income tax on any income it generates. There is a double taxation agreement between Italy and the UK which sets out the general principle that revenue from real estate is taxed in the state where the property is located; this treaty also means you will not charged twice for the same tax.
In recent years, there have been a series of changes in Italy's tax system leading to the abolition of wealth tax, inheritance tax, capital gains tax on real estate, a reduction in gift tax and the reduction of the maximum tax rate.
The Italian tax system can be complicated and many Italians (and not just those who are self-employed) use an accountant (commercialista) to administer their tax affairs. You should take specialist advice on your personal tax situation as there will be many possibilities for reducing your outgoings.
In Italy, owners must bear the following property-related costs:
- Taxes
- Annual municipal real estate tax (ICI)
- Local tax
- Income tax
- Corporation tax
- Import tax
- Other property costs
- Utility costs
- Maintenance, lettings and management charges
TAXES
Annual municipal real estate tax (ICI):
Italian property owners must pay an annual real estate tax known as Imposta Comunale Immobiliare or ICI for short. ICI is paid bi-annually (in June and then December) to the communal authority in which the real estate is located (similar to UK council tax). The rate of ICI varies from one commune to another, varying between 0.4 and 1.2% of a property's rateable value; the exact rate is decided by the local authority depending on the location, size and classification of the property. Owners will have to use the services of an accountant who will calculate your ICI tax bill and complete the necessary paperwork. If the property is unfit for habitation it could qualify for a 50% reduction in ICI.
Local tax:
Some municipal authorities levy an additional tax (“tassas comunales”) to pay for services they supply to the local community such as rubbish collection, street cleaning, etc. Local authorities can also charge for the use of a vehicle. However, these charges are not generally high and should only come to around €250 per year at max.
Income Tax:
Income from Italian real estate is also subject to income tax of 19-46%. For individuals, this is the IRPEF (Imposta sull Reddito delle Persone Fisiche), for legal entities this is IRPEG (see corporation tax below). If only your domicilio is in Italy you will only to pay income tax on income earned in Italy; if you are resident, on the other hand, you will have to pay income tax on your worldwide income (see above for details). There are certain property-related expenses you can set off against your income tax bill – for example, repairs, local taxes, management, etc.
There is also a tax to pay upon the “notional rental value” of your property, even if you are not actually renting it out. This theoretical income is calculated from the property's rateable value and is normally small.
Corporation tax:
The standard rate of corporation tax in Italy is 33 per cent. Capital gains made by legal entities selling real estate in Italy will be subject to the usual taxation for companies, the IRPEG (Imposta Reddito Persone Giuridiche).
Import taxes:
You may have to pay import taxes on certain items if you are moving household goods to Italy.
OTHER PROPERTY COSTS
Utility Costs:
Most Italian properties will have electricity and telecommunications available from a range of national providers. If your property does not yet have electricity, an inspector must check your wiring before you can start receiving supply. Arranging a telephone to be installed in your property can take up to 2 months. Most cities and large towns are supplied mains gas by ITALGAS; for more rural areas you will need a gas tank or bottles.
Water supply is governed by the local commune. Each commune sets out differing rules concerning water usage and property owners will have to pay water rates (acquadotto comunale).
Some parts of Italy do have occasional problems with water supplies so make sure you check the local supply situation before you buy any Italian property as this can be a major headache in Italy 's more remote locations.
Lettings, Maintenance & Management Charges:
There are lots of rental and property management agencies to choose from in Italy and many estate agents will also offer a property management service. Agencies offer a comprehensive range of services including cleaning and maintenance. They may also offer a tenant-finding service for you, at an extra charge. Any repairs, cleaning and maintenance costs incurred by the agent will be extra. Maintenance costs of your Italian property will come to around €800 – 1,100 per year.
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